Alphabet Stock Is Down. Microsoft Bing With AI Threatens Google Search.

In a blog post Monday, Alphabet (ticker: GOOGL) unveiled plans for Bard, a new chatbot that, among other things, can crawl the open internet to find answers. The company also said it would include some new AI features in core Google search.

On Tuesday, Microsoft held a press event in Seattle to unveil a new, more-powerful version of Bing, which takes the power of ChatGPT, and adds access to the web. ChatGPT has access to a vast array of information, but doesn’t search the web. The Chinese tech companies
Baidu
(BIDU) and
Alibaba Group Holding
(BABA) this week also provided some details on their own moves into the generative AI sector.

It’s the Microsoft news that has the market’s attention, however.

Google has long had a near-monopoly on internet search. It currently has about 93% of the market, compared with 3% for Bing. In fact, Google’s stranglehold on the search market has spurred two separate lawsuits from the U.S. Department of Justice. The first, filed in 2020, focused on search. That case goes to trial later this year. Earlier this year, the government filed a second antitrust case, this time related to the online-advertising market.

But investors appear less worried about the litigation than the potential that Microsoft might actually be able to leverage generative AI to boost its share of the market for search—and search advertising.

In a conference call with analysts held Tuesday in connection with the Bing announcement, Microsoft Chief Financial Officer Amy Hood noted that search advertising accounts for about 40% of the $500 billion digital advertising market. On that call, Philippe Ockenden, the CFO for Microsoft’s Windows, Devices, and Search business, added that “for every 1 point of share gain in the search-advertising market, it’s a $2 billion revenue opportunity for our advertising business.”

That’s at the heart of the market’s worry about Google—the potential for the news to vault Microsoft Bing into a far-better competitive position against its more successful rival.

J.P. Morgan analyst Mark Murphy on Wednesday repeated his Overweight rating on Microsoft stock, while lifting his target price to $305 from $265. “AI is a generational technology that has been underappreciated in Microsoft’s story given the company has invested materially for many years to lay a differentiated AI foundation across its tech stack,” he writes. “Microsoft’s investment into OpenAI, which started years ago, could potentially prove to be some of best money ever spent.”

Mizuho analyst Gregg Mowkowitz likewise raised his price target on Microsoft stock to $300, from $280, while repeating his Buy rating. His view is that the company’s moves in AI should result in “more digital advertising dollars, more subscription revenue, and more consumption across Azure and its overall tech stack.”

Google held a search-related event in Paris on Wednesday that unveiled AI-related updates to Google Translate, Maps, and Lens, the company’s visual search service. Google also demonstrated how new search experiences with embedded generative AI can handle questions where there are no right answers, organizing the answers to present complex sets of considerations. (One example they offered was asking what to consider when buying a new car, for instance.)

But the fact remains that Google is the overwhelming dominant leader in search—and Bing now looks like a credible threat for the first time ever. And that has Alphabet holders nervous. Alphabet stock is down 8% on Wednesday, while Microsoft stock is 0.6% higher.

Write to Eric J. Savitz at eric.savitz@barrons.com